Stock Dividends versus Stock Splits Campbell Company wants to increase the number of shares of its common

Question:

Stock Dividends versus Stock Splits Campbell Company wants to increase the number of shares of its common stock outstanding and is considering a stock dividend versus a stock split. The Stockholders’ Equity section of the firm’s most recent balance sheet appeared as follows:

Common stock, $10 par, 50,000 shares issued and outstanding .... $ 500,000

Additional paid-in capital .................. 750,000

Retained earnings ..................... 880,000

Total stockholders’ equity .................. $2,130,000

If a stock dividend is chosen, the firm wants to declare a 100% stock dividend. Because the stock dividend qualifies as a “large stock dividend,” it must be recorded at par value. If a stock split is chosen, Campbell will declare a 2-for-1 split.

Required

1. Compare the effects of the stock dividends and stock splits on the accounting equation.

2. Develop the Stockholders’ Equity category of Campbell’s balance sheet

(a) After the stock dividend and

(b) After the stock split.

Common Stock
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